One of the best ways to manage your income is to create a monthly budget designed to monitor your income and expenses. Too often, we let “miscellaneous” expenses get out of hand and before you know it, there’s no money left at the end of the month to cover the important bills. Every household, regardless of income, needs to have a basic budget that provides guidance when it comes to helping you decide if you have extra cash on hand for an extra night out or if you need to keep those extra funds put aside to pay a few bills.
Here are a few easy steps that can help you set up your own monthly household budget.
The first thing you need to do is calculate your monthly net income from all sources (i.e. your take home pay). From here, you can measure your net income (all the cash you have available) against your net outlay (all your monthly expenses). Putting this in writing will give you a clear picture of exactly how much money you have available each month for bills, groceries, entertainment, savings and other miscellaneous costs.
Your income should include all of your available monthly cash from employment or any other sources.
In your expenses, don’t forget to include even the small items like coffee, cigarettes, bus fare, newspapers and any other daily items where you spend money. These will all add up at the end of each month.
Be sure to monitor your expenses for at least 3 or 4 months to get a good idea of what is a recurring (ongoing) expense and what is an occasional or seasonal cost.
We recommend that you create a spreadsheet to monitor all of your income and expenses so that you have a visual guide for a better look at where your money comes from and where is goes.
Once you have detailed all of your income and expenses, you’ll want to create a target for how much you want to save every month. It doesn’t matter how small that amount might be, the important thing to keep in mind is that this goal is intended to make sure you always have cash on hand at the end of each month. Think of this as forced savings.
When you set your monthly savings goal, make sure the number you come up with is realistic based on your actual income and fixed expenses. For example, you know that you have to pay that electric bill and buy some groceries but maybe you can save $20 and forego that pizza or spend a bit less on coffee each morning. The savings will add up quickly at the end of each month.
Don’t set goals that are too long-term to start. Get a handle on your budget and then look to make longer term plans once you have control of your expenses.
Don’t be afraid to make sacrifices in order to meet your savings goals.
Once you’ve created your savings goals, it’s time to move on to creating your savings plan. In other words, how will you meet your goal of saving $200 every month?
Simply identifying your expenses will be an important first step in the process of establishing your savings plan. Your monthly budget will show you where you are spending that extra $5 here and there and how you can cut back on theses costs.
Once you’ve identified those excess monthly costs, you will quickly start to see how you can turn costs into savings.
One of your savings priorities whenever possible should an emergency account so that you are prepared for the unexpected. An unplanned repair bill, a small dental emergency or even a gift for a friend’s birthday will be a lot easier to manage if you have a few funds set aside for surprise events.
For more help on debt counseling, you can also visit the US Government site here.